Whalesbook
The Confederation of Indian Textiles Industry (CITI) has issued strong warnings about rising domestic cotton costs severely impacting India's textile export competitiveness.
Price Gap Hurts Exports
India's domestic cotton prices have surpassed global prices since April 2024, a shift from past patterns. This is mainly due to falling domestic production and an 11% import duty, putting Indian manufacturers at a major disadvantage against Asian competitors like Bangladesh and Vietnam, who enjoy duty-free imports. Projections suggest a 20-25% drop in India's cotton yarn exports, potentially causing annual losses of $0.5 billion to $1.2 billion. India's share of global cotton yarn exports has already fallen from 38% in 2015 to 28% in 2024.
Adding to the problem, new spinning machinery shipments have dropped significantly, with about 14-15 million spindles now idle, reflecting less investment in spinning mills as profits shrink.
Why Cotton Costs Are High
The core issue is a shortage in domestic cotton production. India's output has declined, while consumption has risen, creating a deficit of 3.7 million bales. Furthermore, India's average cotton yield of around 450 kg per hectare is well below global averages of 800-833 kg per hectare.
Rising MSPs, up nearly 100% in a decade, plus other input costs, drive up domestic cotton prices. Geopolitical events like the West Asia crisis have also raised costs for fertilizers (up 40%) and man-made fibers, further pressuring margins. Micro, small, and medium enterprises (MSMEs) are especially vulnerable, facing tighter credit, delayed payments, and less capital to handle these pressures.
Policy Fixes Face Hurdles
While industry bodies push for removing the 11% import duty and creating a strategic cotton reserve, implementing these plans faces challenges. A proposed Rs 1,500 crore government buffer, managed by the Cotton Corporation of India (CCI) to offer competitively priced cotton, needs significant funding and efficient logistics.
Past efforts at commodity price stabilization in India have often struggled with implementation, cost, and market disruptions. Even with interventions, India's lower productivity and higher costs may keep it disadvantaged. Competitors in Vietnam and Bangladesh have duty-free access, meaning policy delays could cause India to lose market share.
As mentioned, if the current price gap persists, India's cotton yarn exports could decline by 20-25%, potentially leading to annual losses of $0.5-1.2 billion. Indian textile exporters also face higher tariffs in key markets like the US, with duties potentially reaching 50% in 2025, further raising costs compared to rivals.
Outlook for Indian Textiles
While India's domestic textile market is projected to grow to $213.75 billion by 2034 (3.83% CAGR), export competitiveness is key. Moves to improve global logistics quality and diversify into man-made fibers and technical textiles signal a structural shift. Meeting the Ministry of Textiles' $100 billion export target by 2030 depends on securing competitive raw materials and navigating global trade. Long-term success requires India to fix production inefficiencies and offer cost-competitive products globally, not just rely on policy measures.